View more on these topics

Decision time

Selling general insurance products such as household cover, income protection and non-regulated life policies alongside mortgages has now become an important source of additional income for many financial intermediaries.

Historically, advisers who have been active in this market have been subject to a relatively light regulatory regime.

The FSA proposals for the future shape of the regulatory framework which advisers will have to abide by from January 2005 were laid out in December 2002 in two important consultation papers – CP159 and CP160 – and subsequently in CP174, which was issued in March this year.

The rationale behind its proposals is the need to bring the regulation of general insurance into line with the FSA plans for mortgages and to fulfil our obligations to the EU&#39s Insurance Mediation Directive, which requires insurance brokers in each EU country to be regulated by a single statutory body.

Just as with mortgages, in CP159 the FSA proposes that brokers wishing to sell general insurance products will have to choose to be either directly regulated by the FSA or become an appointed representative of one or more principal companies.

The principal – a bigger insurer or a network – will be directly regulated by the FSA for product lines it markets and will be required to have a written contract in place with its ARs and will be contractually responsible for their activities. The likelihood is that most IFAs and brokers which only place a small amount of general business will seek AR status.

The FSA has identified a total of 13 “substitutable” product categories that an intermediary could seek to become an AR to sell. Ten of these categories relate to general insurance products, including buildings and contents and income protection, as well as term insurance, which is not currently covered by the Gisc.

While in theory an intermediary could be linked to 13 different principals, the reality is that the big networks and product providers will form alliances which will enable them to offer a wide range of products. This should enable intermediaries to tie themselves to one organisation who will act as their principal for all or most products they may want to market.

Choosing the right principal, therefore, is going to be a very important decision for intermediaries. Before signing on the dotted line and accepting AR status, careful research should be undertaken to ascertain the level of commission paid and the marketing and training support that will be provided.

More important, intermediaries should investigate very carefully the marketing alliances that a principal has formed and whether their panels of product providers will be able to supply the range of competitively priced products that you will need to be able to compete effectively. The best advice is to start looking early and shop around.

CP160 – Insurance Selling and Administration – deals with selling general insurance and non-investment life insurance contracts. The FSA has come to the conclusion that consumers and small businesses (those with a turnover of less than £1m) need more protection than provided by the current Gisc regime. They also believe that some products (long-term care, income protection and critical-illness cover) carry a higher risk than other insurance products of being missold and need more stringent rules applied to their sale.

Overall, the FSA is keen to minimise the risks of consumers purchasing unsuitable cover or poor value policies – or products they simply do not need. To try and reduce the chances of this occurring, it has drawn up rules which distinguish between two different sales processes: advised and non-advised. Anybody who has looked at the FSA&#39s proposal for the sale of mortgages will recognise this model.

CP174 is a substantial document and most commentators are still working through this 322-page tome. One very important proposal, which complies with the EU&#39s insurance mediation directive, is hat insurance intermediaries should have adequate professional indemnity insurance cover in place.

The FSA has proposed that intermediaries should have cover equivalent to either one million euros or three times their turnover. Regulation tends to increase the number of complaints and it seems inevitable that the cost of obtaining PI cover to sell general insurance products will add considerably to the running costs of many firms.

Overall, the major benefit of the FSA&#39s proposals is that they are very black and white and comprehensive. For the first time, the new rules will ensure that the sale of general insurance products will be carried out in a consistent manner using standard documentation. It seems inevitable, however, that the new regime is going to add considerably to the cost of doing business.

Many smaller firms and sole practitioners will probably be confused about what is the best course of action to take. Assuming direct regulation by the FSA is not a realistic option but they are already members of a network, over the next few months they should be seeking clarification about the type and level of support it will be offering to help them deal with the changes that will occur.


Abbey helps smooth the way for first-timers

Abbey National has helped to publish a Rough Guide to getting a foot on the property ladder.The Rough Guide to Buying Your First Home warns first-time buyers about the pitfalls of the housebuying process. It covers everything from planning finances to dealing with estate agents and solicitors.Abbey says Easter typically heralds the start of the […]

Craig criticises pensions response

Scottish Equitable pensions development manager Margaret Craig has hit out at the negative tone of responses to the Government&#39s Pensions Green Paper, claiming the industry is becoming too bogged down in the detail and losing sight of the end goal. Craig was a member of the Pickering review team, whose report published last July led […]

Spending spree leaves homeowners lacking cover

Homeowners are drastically under-insured as a result of a consumer spending boom, says a survey by Charcol Insurance Brokers.The survey reveals that over the last 12 months, 48 per cent of UK homeowners have bought major items for their homes. Despite this, 61 per cent have not reviewed their insurance cover over the same period.A […]

Yorkshire hopes loans find Accord with IFAs

Yorkshire Building Society has marked the launch of its intermediary lender arm, Accord Mortgages, with a range of products including a three-year stepped tracker and an offset loan.A fixed-rate loan at 3.85 per cent is available until July 31, 2005. It has a £350 arrangement fee and a redemption penalty of 3 per cent of […]

Creating opportunity out of change

By Denise Wond, marketing manager The buy-to-let market has recently been the subject of a raft of tax changes, all of which make it a less profitable and less appealing proposition for investors. In response, we’ve seen a dip in demand for BTL mortgages and that’s bad news for many advisers who will now be looking […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm